Fed, two summits and many prayers
Fed FOMC decision and President Erdogan’s summits first with Rouhani and Putin, then with Trump at the sidelines of the UN opening ceremony will set the country risk premium for autumn. There are very low odds for Erdogan convincing Moscow and Tehran to turn over the northern part of the rebel province Idlib to Turkey. Instead of allowing Assad to conquer Idlib and see hundreds of thousands of refugees fleeing to Turkey, Erdogan will have to use pro-Turkey militia and even the military to defend Turkey’s interests.
The meeting with Trump could potentially go better, with the former promising to provide cover for Erdogan in Syria safe zone and S-400 purchase controversies, but one possible “unintended consequence” of the lasting friendship may be Congress acting to legislate sanctions on Turkey.
At home it is certain Ali Babacan and Ahmet Davutoglu will launch parties rival to AKP. Two out of three polls suggest these could garner enough support to eliminate AKP-MHP’s electoral supremacy. Additionally, AKP is crumbling at the edges with 450K-to-one million member resignations over the last year or so. Erdogan has two options to deal with disarray and rebellion. Recent evidence suggests he could either attempt to crush the rebels, or turn more pragmatic. We shall predict which way he will go based on the developments ahead.
After contracting sharply in June, industrial production recovered in July, but our reading of the data suggests that it is too early to speak of a robust recovery.
Twelve-month rolling current account balance entered firmly in surplus territory in July, while (seasonally-adjusted) monthly data has yet to show a marked deterioration. Financing was somewhat better in July, but still weak overall, with banks continuing to reduce, on a net basis, their longer term loans.
Cosmo foresees political risk rising enough to rattle investors, but Fed could mitigate most of the damage.
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